We came back from HUAYANG’s briefing feeling indifferent given that management are still maintaining their targets set in previous briefing, which is RM500.0m sales target for FY17 backed by RM721.0m worth of launches. However, we reduced our FY17-18E earnings by 15-2% as we lowered our FY17E sales by 8% and lowered our billings assumptions. Maintain MARKET PERFORM, but with a lower TP of RM1.32 (previously, RM1.37).

Setting high bars. The main highlight of the briefing was management’s confidence in maintaining their sales target of RM500.0m for FY17 where management remain assured that the market demand for affordably priced properties remains resilient. Furthermore, they have received positive feedbacks for their upcoming launches i.e. Astetica, Seri Kembangan (GDV: RM368.0m) and Meritus, Penang (GDV: RM220.0m). However, due to the stringent loan approval criteria, which have driven loan rejection rate to 60%, we opt to lower our sales target from RM409.2m to RM377.5m.

Emphasises on quality. Apart from sales target, management also highlighted that quality remains one of their priorities especially in delivering the end product to homebuyers. Hence, management’s key focus for the year is ensuring projects that are due for deliveries are completed on time and well received by its buyers with minimal complaints upon delivery. To recap, its recently delivered one of their affordable project namely Metia Residence with a Qlassic score of 73% which is above CIDB’s benchmark of 70%, which is a testament of the quality of their projects albeit operating in the affordable segment.

Cash is King. Lastly, management further reiterated their stance in cash management of which they would still like to conserve more cash in anticipation of future land banking activities. Hence, we do not expect the group to maintain DPR of 30% as they have practised in the past. We are keeping our DPR of 10% for FY17-18E which implies dividend yield of 2.1-1.9%, respectively.

Lowering FY17-18E earnings. Post briefing, we lowered our FY17- 18E earnings by 15-2%, following our downgrade in FY17E sales target of RM409.2m to RM377.5m, coupled with a slower progressive billings assumption. Its unbilled sales of RM311.1m will still be able to provide earnings visibility for another year.

MARKET PERFORM. We continue to reiterate our MARKET PERFORM recommendation on the stock, as we believe that they are still well positioned in the affordable housing theme, with a lower Target Price of RM1.32 (previously, RM1.37) as we raised our discount to its RNAV of RM2.64 higher from 48% to 50% (historical trough). Our TP of RM1.32 implies FY17-18E PER of 5.1-5.5x which is still lower compared to its peers that are trading at the range of 6.0-7.0x.

Risks to our call includes: (i) Weaker-than-expected property sales, (ii) Higher-than-expected sales and administrative costs, (iii) Negative real estate policies, (iv) Tighter lending environments, and (v) Higher-than-expected dividend pay-out.

Source: Kenanga Research - 25 Oct 2016